On 28 June, 2018, the National Development and Reform Commission (NDRC) and the Ministry of Commerce (MOFCOM) of the People’s Republic of China (PRC) jointly issued the Special Administrative Measures on Access to Foreign Investment (the “Negative List”) (2018 Version). Effective on July 28, 2018, the Negative List supersedes the Foreign Investment Industry Guidance Catalogue (2017 Version) (the “2017 Catalogue”).
The first Foreign Investment Industry Guidance Catalogue (the “Catalogue”) was promulgated by the NDRC and the MOFCOM on June 20, 1995. Since its first promulgation, the Catalogue has gone through eight revisions. Under the 2017 Catalogue, industrial sectors are divided into three categories: “Encouraged”, “Restricted” and “Prohibited”. Foreign investors are incentivized to invest in the Encouraged sectors and are banned from investing in the Prohibited sectors. Foreign investors are allowed to invest in the Restricted sectors, subject to certain restrictions (such as foreign ownership percentage limits and special regulatory approval requirements). Sectors that are not listed in the Catalogue are deemed as “Permitted”, where foreign investment is allowed, but without preferential treatments (such as tax breaks or other forms of government subsidies).
The Negative List is a list of industry sectors in which foreign investment is either restricted or prohibited. The relevant restrictive measures include shareholding limitations and requirements regarding the component of high-ranking executives. Compared with the 2017 Catalogue, the total number of Restricted and Prohibited items in the Negative List is reduced from 63 to 48 (relating to 22 different industry sectors). With respect to industries that are not explicitly listed in the Negative List, foreign investors are in principle treated the same as domestic investors, save for certain record-filing requirements.
The 2018 Negative List was released when it comes to the 40th anniversary of China’s economic reform and liberalization, and is generally understood as demonstrating China’s continued willingness to gradually open up its market to foreign investors.
Notwithstanding the PRC government’s intention to open up more areas of investment for foreign investors, we would like to note that certain areas, which are of interest to Cooley’s clients, stay in the 2018 Negative List. A non-exclusive list of such areas include: (i) technology relating to human stem cells and genetic diagnosis and therapy, (ii) online news and information services, online publishing services, online audiovisual program services, online operational cultural products and activities (other than music), and online information dissemination services (only permitted to the extent promulgated under China’s WTO commitments), and (iii) value-added telecommunication business, except for e-commerce (subject to foreign shareholding limitations). We will continue to monitor any further developments in this regard and provide updates as appropriate.